What the First Half Says About the Second Half

What the First Half Says About the Second Half

The S&P 500 closed out the first half of the year on June 30th up 9.6%. The chart below looks at what a start like that has meant for the rest of the year.

I split every year since 1950 into two halves and plotted them. On the x-axis the January-June return, and on the y-axis the July-December return. Each dot is one year. Where that dot sits on the x-axis is the first-half return. Where it sits on the y-axis is the second-half return.

The dots in the upper right were positive in both halves, and that's where most of them are.

The data is clear, good first halves have tended to lead to good second halves. In the 53 years the first half was positive, the second half was up about three out of four times, averaging 6.2%. When the first half was negative, the second half was closer to a coin flip.

That data gets stronger the better the performance in the first half. In the 25 years the S&P was up 9.6% or more by June, right where we are now, the second half was positive 84% of the time.

It's no guarantee, in 1987 the market was up big at midyear and gave it all back in the fall. But more often than not, a strong start has carried into the back half of the year instead of reversing.

Until next week,
Jacob

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